Budgeting is the tool by which you organise your company and plan for possible future circumstances. It is a forecast of all cash sources and expenditures and can greatly enhance your success by helping you estimate your future needs and plan profits, spending and overall cash flow.
As part of a business plan, a budget can help you decide whether you have enough money to achieve your business goals. Furthermore, a budget can help convince a loan officer that you know your business and have anticipated its needs.
A budget will indicate
1. The cash required for necessary labour and /or materials
2. Total start-up costs
3. Day-to-day maintenance costs
4. Revenues needs to support business operations
After assessing these factors, you can adjust your plans accordingly. If more money is needed you could start by:
• Reducing expenditures: hiring fewer employees, purchasing less expensive furniture, installing energy efficient appliances etc
• Expanding sales: selling additional products or services in relation to your business (like coffee with a book store for example) conducting an extensive marketing campaign
• Lowering profit expectations: you company will need time to develop both in branding and strategy. This is obviously the least desirable option, but is usually only short-term
Every business should budget before investing money into assets or signing leases. To ensure your goals can be reached, or to foresee areas of weakness that must be dealt with. Putting all the numbers down on paper first is a lot safer than spending your hard earned money.